The Addis Abeba Chamber of Commerce & Sectoral Association (Addis Chamber) has embarked on a pioneering venture to establish the country's first credit rating service, a move many in the private sector see will boost Ethiopia's nascent capital markets. This initiative, a partnership with the Dubai-based International Credit Rating Agency LLC (ICRA Rating), marks a crucial step towards improving financial disclosure for businesses.

The agreement, signed at Dubai's Prism Tower a month ago, represents a strategic partnership designed to leverage the expertise of ICRA Rating.

Under the terms of the memorandum of understanding, the Chamber will take on the responsibility of collecting initial documents and screening financial statements, while ICRA Rating will conduct in-depth evaluations and assign credit ratings. Shibeshi Betemariam, the secretary-general of the Chamber, envisions this partnership as a stepping stone towards the establishment of a full-fledged credit rating agency, aspiring to address the longstanding issue of financial access for local enterprises.

"Most businesses have an issue when accessing finance," he told Fortune.

The move comes at a time when Ethiopia's financial sector is witnessing the genesis of a formal capital market, with the Ethiopian Capital Market Authority (ECMA) recently starting to license various financial market participants. To obtain a license, rating agencies must meet several requirements, including membership in the International Organisation of Securities Commissions (IOSCO), a recommendation letter from their country of origin, and a minimum capital of 15 million Br. Brook Taye (PhD), the director general of the Authority, stressed the importance of a letter of good standing from the equivalent authority in the origin country for acquiring a license.

"We're welcoming qualified operators," he told Fortune.

A credit rating industry that has been both influential and, at times, controversial. Dominated by giants like Moody's, Standard & Poor's, and Fitch, credit rating agencies have faced scrutiny and regulatory pressure following their role in the 2008 financial crisis. The history adds a layer of intricacy to establishing a credit rating system in Ethiopia, demanding rigorous scrutiny, unambiguous laws for accountability and transparency, and sound analytical methods to address systematic risks.

Estifanos Melkamu, a senior legal advisor at the Authority, disclosed that rating publicly traded companies will require a green light from the Authority.

Despite the embryonic stage of the capital market, the need for a domestic credit rating agency is real, according to Yohannes Arega, a senior advisor at the Authority. He warns of the challenges ahead, noting the stringent safeguards and compliance requirements that make the path to licensing a domestic agency steep. However, Yohannes believes that joint ventures might offer a more feasible route, pointing to a potential avenue for overcoming the current lack of local expertise in this sector.

Million Kibret, a business consultant, emphasised the critical balance that must be struck between credibility and stability in the financial markets.